Independent Restaurants, 2011 Expected Developments

While the publicly traded and big chain restaurants get most of the trade press attention, the fact remains that a majority of restaurant businesses in the US remain  “independents.” Here are some notes and factors underway that will affect 2011:

Slow growth, at best: a tide of returning to normal upper end business travel has lifted upper end restaurants. Upper end hotel occupancy and average daily revenue per available room (RevPar) have been rising since early 2010. Expense account travel occasions are up, and there is particular demand for so called private dining events, a closed, private dining room with internet and audio visual hookups so large national groups can meet.

Its expected that average check growth will be the overall most positive influence with customer traffic less positive but still improving or positive in 2011, versus 2010 levels.

Independents remain a target: the chains see growth going forward as a market share battle, and hope for independent unit closings. But at the street level, smart independents should watch and take advantage of those weaker, badly managed chain units as waves of turmoil and change can be opportunistic. Chain restaurants are busier per square foot but independents add more to the community (rent, payroll, profits etc).

Chains v. independents consumer perceptions: independent restaurants strengths versus the chains remain (1) more tasty food; and (2) more friendly staff, and environment. Chain restaurant strengths versus the independents remain: (1) more consistent food and service; and (2) more convenient locations. To be forewarned is forearmed.

Commodity Cost trends a problem: world-wide commodity costs are up across the board, with cash settlement prices up on every single food commodity tracked in January and February except chicken, eggs and block cheese. Smaller restaurants can’t contract (except via large cooperatives) and are essentially at the mercy of purveyor street pricing. 2011 pricing action is expected in the industry, with smaller focused increases taken right before the point of business seasonality improvement.

A clue: if an independent operator didn’t take price increases in 2008/2009/2010, it might be time. And if an operator hasn’t thought about “small plates” menu modifications, this is exactly the time to do so.

Via a recent nationwide survey, customers noted they expected to pay less in 2011 ($12.90 on average, versus $13.25 last year). Routine couponing, discounts and company sponsored direct email remained the communication venue of choice.

Epidemic Low Lunch Pricing and Happy Hour promotions: are everywhere, and typically 300p-600p and 900p until close. Restaurant operators need to sort out whether the happy hour pricing is restaurant wide, or just in the bar area. We see both.

Access to capital and funding: remains very difficult and limited. Self, friends, family and existing cash flow remain the easiest sources of funding for independents. Some local community banks have begun to relisten to proposals.

About John Gordon

John A. Gordon is a restaurant sector expert, who focuses on restaurant management, operations, and related earnings and economics matters. He consults with attorneys and other professionals who need to know about restaurants, via expert research, expert consultant and expert witness roles. Working for both plaintiffs and defendants, he has experience with both state and federal actions. He is an expert on chain restaurant business conditions and publicly traded companies. Gordon has extensive, career-long executive restaurant operations, corporate staff, financial management and management consulting experience, and is familiar with virtually all management issues and business disciplines. He has completed PSLRA securities, financial projections, due diligence reviews, earnings and damages, franchisee/franchisor matters, wage and hour and menu analysis expert work. Expert witness and article contributor for www.ForensisGroup.com

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